Belarus: Lukashenka's Third Term Fraught With Economic Dangers

Gas compressor station near Minsk (file photo) (Bymedia.net) Alyaksandr Lukashenka has won the opportunity to continue serving as Belarus's president, but he must now face harsh realities that could make his third term a rocky one. Looming large among them is a possible price hike for the gas imports Belarus depends on. Russia's Gazprom recently announced that it will seek to triple the rate Belarus pays for its gas imports as a new contract for 2007 is negotiated. Such an outcome could increase pressure for changes in the way Belarus's planned economy is run -- changes that Lukashenka is unlikely to back.

PRAGUE, April 11, 2006 (RFE/RL) -- Belarus currently enjoys economic stability and growth, but is highly dependent on cheap Russian energy resources.

Stuart Hensel of the London-based Economist Intelligence Unit says the Belarusian economy is built on sand. "Lukashenka clearly faces some economic challenges in the next couple of years," he says. "I think the main problem for him is that a lot of what has helped the Belarusian economy grow so strongly in recent years is not necessarily set to continue."

Gazprom Gets Tough

The country's economy is highly dependent on the inexpensive oil and gas supplies it receives from Russia. Belarus currently pays less for gas than any other country in the Commonwealth of Independent States -- about $47 per 1,000 cubic meters.


With Western European countries paying around $240 per 1,000 cubic meters, Russian supplier Gazprom's recent announcement that it will seek European rates from Belarus has raised concerns in the country.

Hensel says even a minor price increase in energy prices could significantly affect the Belarusian economy, but he doubts the Lukashenka will see a major difference once a new deal for 2007 is worked out.

"The No. 1 concern he [Lukashenka] should have at this point, probably in terms of an immediate external shock, is these recent noises coming from Russia concerning a significant rise in Belarusian gas prices, much as has been seen in other former Soviet republics," Hensel says. "I think he should, as in the past, be able to avoid significant rise in these gas prices."

Former Soviet republics Ukraine, Moldova, and Georgia last winter found themselves in disputes with Russia over gas deliveries -- and all eventually agreed to significant price hikes.

And this week, Gazprom announced that it has inked a new deal with Armenia under which it would gain control of a pipeline being constructed to import gas from Iran.

A gas dispute with Russia could see Belarus losing control over its pipeline operator Beltranshaz -- and with it some economic sovereignty. Control over the Belarusian pipeline operator might well be what Russia is really seeking.

Russia's Best Friend?

But Tatsyana Manyonak, an economic analyst for the Minsk-based weekly "Belarusy i rynok" (Belarusians and the Market), says Lukashenka might still be able to work out a good deal. This, she says, is because Russia treats Belarus differently than other countries for political reasons.

"I cannot seriously believe that it [Russia] will put its only ally, President Lukashenka, into some kind of blind alley," Manyonak says. "I don't think that it is useful for Russia now. This is the reason I think some compromise will emerge concerning both a price for oil and also for gas."

Manyonak says Belarus is important to Moscow both militarily and as a transit country for Russian goods. She also notes that Belarus is the only post-Soviet country that openly seeks to unite with Russia.

Energy Not The Only Problem

Regardless, Minsk's economic worries go beyond its dependence on cheap energy.

During his rule Lukashenka has steered Belarus away from the economic reforms that have swept through the region. This has left the country with no functioning market economy and about 80 percent of its industry in state hands.

And, as Hensel of the Economist Intelligence Unit notes, Lukashenka has consistently raised pensions and wages in an effort to sustain popular support. "Wages have been growing extremely fast under Mr. Lukashenka," he says. "That's something that's probably unsustainable. That's put a lot of pressure on Belarusian companies also in terms of competitiveness."

Nearly 60 percent of Belarus's factories are currently operating at a loss. The burden this places on the economy is partly offset by a small number of profitable companies that provide subsidies and contribute to state social programs.

Such a course is difficult to maintain, but while Hensel believes economic reforms are in order, he says Lukashenka has become a slave to his own economic policy.

"His economic policies have not encouraged the degree of investment and restructuring that the economy needs in order to ensure sustainable growth," he says. "The problem for him is his entire political model and his entire ability to retain political control depends on the sort of economic structures that he has put in place. Namely very strong state control."

Implementing market reforms would mean the closure of factories and higher unemployment -- which would harm Lukashenka's popular support. The rise of private business and a middle class could potentially pose a challenge to his rule.

So ultimately, Hensel believes Lukashenka has placed himself in an uncomfortable situation -- one in which he cannot continue as before but is also unable to move forward.